Market Manipulation


Jesse Livermore learned the art of stock market manipulation, manipulating the prices of thinly traded stocks, in bucket shops.

On March 13, 1925, Arthur Cutten – one of his biggest rivals – accused Livermore of continuing his shady dealings – not in bucket shops – but, very seriously, on the Chicago Futures Exchange.

At the beginning of his career, Jesse Livermore had traded exclusively in bucket shops. He had prospered and built up his funds. Bucket shops weren’t set up to lose money, however, and soon they were refusing to deal with Livermore, or worse, were cheating him.

Livermore’s response was to select crooked bucket shops to trade with – he had no qualms about taking their money using manipulative methods. He would then build their confidence by losing in several smaller trades. Then came a big trade – and the sting.

At the bucket shop, Livermore would place a trade on a stock that he knew was only thinly traded on the NYSE. He would then trade the shares on the NYSE to move the actual stock price substantially in the required direction. The new price would come through to the bucket shop and Livermore would collect his profits.

Although Livermore stopped trading in bucket shops, Arthur Cutten suspected Livermore continued to engage in market manipulation.

Time Magazine (May 25, 1925) carried the story of the events of March 13, when “Jesse L. Livermore (Manhattan) and Thomas Howell (Chicago) loosed an avalanche of wheat and rye that proceeded right through the bottom of the grain market.”

This was one of Livermore’s legendary bear raids when he would unleash wave after wave of short selling on a carefully selected stock or commodity.

Time Magazine continues:

“Mr. Arthur Cutten (Chicago) was notably annoyed… because he, the big holder of wheat and rye, was feeling bullish, and his enormous paper profits were being swept rudely into oblivion.

“Mr. Cutten felt that the catastrophe had been timed purposely to do him injury, since it happened while he was on an automobile excursion, out of touch with his agents.”

According to rumor at the time, Cutten’s huge “bull account” provided a tempting target for the bears. Their attack was so powerful that Cutten was forced to sell some eight million bushels of wheat in Winnipeg. This, of course, pushed the price down even further and enabled the bear raiders to sell to him, closing their positions for maximum profit.

Cutten blamed the fall in wheat on the manipulative tactics of a “master speculator” in Florida, supported by a powerful group of interests.

“U. S. Secretary Jardine was alarmed because the simultaneous action of the Messrs. Livermore and Howell suggested possible collusion to manipulate grain prices – a practice painstakingly prohibited by the Capper-Tincher Grain Futures Act.

“Mr. Cutten could do nothing about it save abuse the Messrs. Howell and Livermore beneath his breath and hope with a great hope that Secretary Jardine would order an investigation, discover collusion, punish his oppressors.

“Investigate, Secretary Jardine did… but not one of the investigators had yet run upon any proof of correspondence between the Messrs. Livermore and Howell nor any records of sales in those gentlemen’s names executed in other than legitimate ‘contract’ markets.

“As far as the evidence went, it was mere business acumen that had moved them separately to sell their grain at the same time and keep on selling until it was time to buy again and start the price-swing going upwards.

“Messrs. Livermore and Howell are alleged to have made between them some 22 millions on the operations. Some Europeans lost much money; others saved much by buying necessary wheat shipments when the price was down.
“From the U.S. standpoint, this latter feature was not creditable to the Messrs. Livermore and Howell as an ‘economic service,’ for the U.S. farmer lost a fat slice from prices he had hoped to command this month and next.

“Last week, it seemed that the most important result of last Black Friday would be recommendations from Secretary Jardine that the Boards of Trade institute rules limiting the fluctuation of grain futures prices in a single day – rules similar to those found beneficial on the Cotton Exchange.”

1 thought on “Market Manipulation”

  1. Reminiscence of a stock operator – Great read about the mindset of a great trader of all times. Thanks for sharing an excerpt from this book.

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